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How much should I hold? Reserve Adequacy in Emerging Markets and Small Islands

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  • Nkunde Mwase

Abstract

This paper investigates the drivers of reserves in emerging markets (EMs) and small island (SIs) and develops an operational metric for estimating reserves in SIs taking into account their unique characteristics. It uses quantile regression techniques to allow the estimated factors driving reserves holdings to vary along the reserves’ holding distribution and tests for equality among the slope coefficients of the various quantile regressions and the overall models. F-tests comparing the inter-quantile differences could not reject the that the models for the different quantiles of SIs reserve distribution were similar but this was rejected for EMs distribution suggesting that models explaining drivers of reserve holdings should take into account the country’s reserve holdings. Empirical analysis suggests that the metric performs better than existing metrics in reducing crisis probabilities in SIs.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/205.

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Length: 44
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/205

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Related research

Keywords: Emerging markets; Economic models; Reserves accumulation; Reserves adequacy; Small states; reserve holdings; short-term debt; current account; balance of payments; exchange rate regimes; terms of trade; exchange rate regime; external shocks; trade shocks; multilateral debt; terms of trade shocks; trade openness; reserve holding; commodity exporters; debt service; market debt; concessional debt; external debt; debt ratios; external financing; reserve accumulation; short term debt; current account deficits; public debt; impact of trade; current account deficit; vulnerability to shocks; debt crisis; foreign debt; world trade; debt threshold; multilateral creditors; idiosyncratic shocks; current account adjustment; central bank; debt holders; debt structure; currency crises; domestic currencies; currency crisis; trade shock; export diversification; export earnings; currency mismatches; official creditors; adjustment process; open economy;

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References

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  1. Obstfeld, Maurice & Shambaugh, Jay C & Taylor, Alan M, 2008. "Financial Stability, the Trilemma, and International Reserves," CEPR Discussion Papers 6693, C.E.P.R. Discussion Papers.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  4. Aizenman, Joshua & Lee, Yeonho & Rhee, Yeongseop, 2004. "International reserves management and capital mobility in a volatile world: Policy considerations and a case study of Korea," Santa Cruz Center for International Economics, Working Paper Series qt1867f7ng, Center for International Economics, UC Santa Cruz.
  5. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  6. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  7. Atish R. Ghosh & Jonathan David Ostry & Charalambos G. Tsangarides, 2012. "Shifting Motives," IMF Working Papers 12/34, International Monetary Fund.
  8. Woon Gyu Choi & Sunil Sharma & Maria Str�mqvist, 2009. "Net Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 516-540, August.
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